The GLD Two-Step

Much has been made recently about "metal flowing back into the GLD". As if this is a sign that "investors are returning to the sector" and "the ETFs are working just as you'd expect". Uhhhh....not so much. Let's look at the actual numbers.

First of all, you know the story. While price was beaten savagely lower in 2013, allowing JPM and the other banks to either dramatically reduce or eliminate altogether their net short positions, the GLD was raided for metal to cover the ever-increasing demand from China and other dollar creditor nations. From a 1/1/13 "inventory" of 1,349.92 metric tonnes, the GLD was consistently pillaged for supply and it finished the year at 798.22 mts, down over 40%. Even though price initially bottomed on 6/28/13 at $1180, the GLD shed a total of 171.28 metric tonnes between that date and the double bottom date of 12/31/13.

Apologists for the fractional reserve bullion banking system claimed that the "inventory" declines were due to investor liquidations, caused by lower prices for gold. Only a gold bug kook would believe that the GLD raid was being orchestrated in an effort to dislodge physical supply. "Just wait", the Apologists said. "The gold will return as prices rise", they promised.

Since The Double Bottom was established on New Year's Eve, there have been all sorts of articles and commentaries proclaiming the return of gold to the GLD. A quick Google search yields all sorts of results. Here's just a sampling:

After perusing these articles, you would think that gold was rapidly flowing back into the GLD as prices rally. Of course, if you did think that, you'd be wrong. Let's take a look at the actual numbers and see if we can spot a pattern.

Though there were a few, small additions to the GLD back in August, for most of 2013 there were nothing but daily withdrawals. The first, major addition that got everyone's attention was on 12/20/13, when 5.30 metric tonnes suddenly appeared in "inventory". The following market day, 12/23/13, that metal was just as suddenly removed as 8.40 metric tonnes left the building. Hmmmm, said Turd. That's curious. Since then, this happened two more times. There was a deposit on 1/17/14 that was completely removed by 1/23/14 and there were a series of deposits in late January and early February that, as of yesterday, have also been removed. It looks like this:


12/19/13 -3.90 mts 808.72 mts $1194

12/20/13 +5.40 814.12 $1204

12/23/13 -8.40 805.72 $1198

1/17/14 +7.49 797.05 $1252

1/22/14 -1.20 795.85 $1239

1/23/14 -5.39 790.46 $1262

2/13/14 +7.50 806.35 $1300

2/14/14 -5.10 801.25 $1318

2/19/14 -5.64 795.61 $1320

So what do we see here? Every major addition that has occurred over the past two months has been met with an almost immediate, subsequent withdrawal. It appears that every time an Authorised Participant comes up with some gold to cover and close a short sale, another Authorised Participant quickly grabs the metal in order to settle one of its own physical claims. Recall that we've been writing about this phenomenon for months, as gold rapidly flows from London to Switzerland, where 400 ounce bars are being recast into Asian kilobars with official government insignia. Just today, there's another headline detailing the Swiss export of gold:

The tight supply of London Good Delivery (LGD) bars is also evidenced by the persistently negative Gold Forward rates. Negative GOFO used to be an anomoly, occurring for just 7 days over the period of 1989-2012. Lately, though, it has become the status quo as one-month GOFO rates have now been negative for 94 of the past 160 market days. That they remain negative currently is obviously one of the factors prohibiting Cartel Bank price raids into this 2014 rally:

DATE 1-mo 2-mo 3-mo 6-mo 12-mo
11-Feb-14 -0.03400 -0.02000 -0.00400 0.05800 0.12600
12-Feb-14 -0.04800 -0.02600 -0.01200 0.04400 0.12200
13-Feb-14 -0.04600 -0.03000 -0.01000 0.04400 0.12200
14-Feb-14 -0.05000 -0.03000 -0.01000 0.03600 0.11800
17-Feb-14 -0.05000 -0.03200 -0.01000 0.03400 0.11600
18-Feb-14 -0.05200 -0.03400 -0.01400 0.03800 0.11400
19-Feb-14 -0.04800 -0.03000 -0.01000 0.03400 0.11000
20-Feb-14 -0.05200 -0.03400 -0.01200 0.03200 0.11200
Getting back the GLD "inventory", one final note. Did you notice the net change YTD?
As you know, price hit a Double Bottom on 12/31/13 at $1180. Since then, it has rallied over $140 or nearly 12%. But the GLD is now down YTD, falling from 798.22 mts to yesterday's 795.61. "Investor liquidations" my arse! And without the 23 metric tonnes "paid back" to the GLD in covered shorts, GLD "inventory" would now be down 26 metric tonnes YTD!
And it's not just the GLD. As Jesse notes here, if you combine all of the popular funds and exchanges, "inventories" declined by over 61 metric tonnes in January...all while price was rallying from $1180 to $1260.
So, don't buy this nonsense that "gold is returning to the GLD" and that "the ETFs are functioning just as they should". Physical gold is clearly in very short supply worldwide as demand is insatiable. Continue to stack, while there's still time. "Emere stupri intinge!"

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